[josh3736]

This very much depends, and probably isn't a good idea. Mortgages are some of the cheapest loans you can get.

You'll almost always be better off putting your extra cash into index funds instead of overpaying a mortgage.

Index funds historically return ~7% long-term, while your mortgage will likely be 3-5%. By overpaying a mortgage, you're missing out on an extra 2-4%: it's better to pay ~4% in order to get a gain of ~7% elsewhere.

Not to mention that every cent you put in to your mortgage is now locked in to your home equity, meaning it's difficult to access that money if you need it. You can sell your stock holdings and have the cash in a matter of days. Accessing the money you put in to mortgage repayment probably means taking out a HELOC or similar, which takes time and requires getting approved for the loan. If you're in a particularly bad situation, this might not even be plausible. And you'll pay extra interest for the privilege of accessing your own wealth.

On top of all of that, the tax implications are bad too. Long-term capital gains rates are low. Mortgage interest you pay is deductible. You lose both those benefits by overpaying your mortgage instead of investing the cash.

Of course, in fairness, early repaying a mortgage is a guaranteed return of 4%, while investing in the markets carries risk. However, in OP's situation—where they likely won't need any of this extra cash on short notice—you can ride out down markets and sell once they've recovered.

[bmitc]

On paper and in a theoretical sense, yes, mortgages are the largest and cheapest loans normal people can get and investing is the mathematical play. However, such advice does not take into account risk. There is much higher risk in having a mortgage than not having a mortgage. There is additional risk in having a mortgage plus investing your savings. If someone is making double their salary, then they could pay off a reasonable house (say up to ~$1M) in a decade or so. That is a huge amount of burden and risk that gets reduced, which doesn't take into consideration the emotional and stress release.

Also, people often say that you shouldn't invest money that you don't need in less than five years. The present time is a good example of that. So, treating securities investments as liquid in periods smaller than that is dangerous.

Assessing potential risk is just as important as assessing gains.

[josh3736]

Of course one needs to assess the relative risks of your different options, and no one said that investing is risk-free. However, I must disagree with this premise.

What exactly is the "much higher" risk of having vs not having a mortgage? There shouldn't be any management overhead; put it on autopay and you don't need to think about it. I'm guessing you mean the risk of default in the event you find yourself unable to make the monthly payments, and consequentially losing your house.

Sure, the type of person who thinks solely in terms of monthly payments and wins a big chunk of change in the lotto would be well-advised to pay off their mortgage because (speaking in generalizations) they aren't making great financial decisions in the first place.

If you manage your finances prudently, I don't see simply having a mortgage as a major factor when comparing the risks of investing excess cash vs paying down the mortgage.

In a nightmare scenario, where you've invested all your excess cash and then find yourself unable to make mortgage payments in a down market, you still have the investments to draw on. Sure, you may be rather unhappy about taking a 20% haircut every month to make your mortgage payment, but you won't lose your house.

Plus, you'd still have other options in this scenario. Maybe you can negotiate temporarily reduced or interest-only payments. After all, your bank would probably prefer to not risk losing a sizeable chunk of their principal in a foreclosure. In a more systemic crash, maybe there's government assistance, deferment, or the like available (eg see 2008's https://en.wikipedia.org/wiki/Housing_and_Economic_Recovery_...).

And just because one doesn't have a mortgage doesn't make you immune to the risk of losing your home. You're still on the hook for property tax payments, and failing to manage those will end the same way.

Of course, this all assumes you're otherwise making good financial decisions anyway. Your mortgage should be affordable when you're making 100% of your normal and expected salary, and that you haven't bought too much house because you suddenly find yourself making 200%.

We should also understand that not everyone approaches personal finance the same way. I simply don't view a mortgage as some kind of existential stressor, and cannot relate to the "emotional burden" you allude to. It's just one other line item in the budget.

On the other hand, my other half hates even thinking about finances, and would certainly get anxious thinking about and trying to manage this kind of stuff — that's why I deal with it :)

For someone like that, I can understand how eliminating a mortgage can have value to them, for the reasons you describe. However, we must admit that this isn't exactly a rational thing, and it's not doing anyone any favors to pretend otherwise.

Let's run some basic numbers:

With a $1m loan at 4% APR over 30 years, you will end up paying $719k in interest.

This $1m loan will have a monthly payment of $4,774. Let's say you were to double your monthly mortgage payment, and pay $9.5k every month. This would get you paid off in ~11 years, and reduce your total interest paid to $232k, a 'return' of $487k over a decade.

On the other hand, if you paid your mortgage for 30 years and you invested your extra $4,774 (assuming VTI's average historical return of 9.81%), you'd end up with $10.5m, a return of $8.8m over 30 years.

Now contrast with paying off your mortgage in 11 years and then investing $9.5k every month for the following 19 years. You'll end up with $6.4m, a return of $4.2m.

$487k in interest savings + $4.2m of investment returns = $4.7m total return

Is paying your mortgage off early really worth $4,100,000 to you?

[hnfong]

Your approach is logically equivalent with buying ETFs on a margin. Such leveraged positions are considered inherently "risky".

Everyone handles risk differently, for some people a 1% risk of a small loss might not be acceptable, whereas some other people essentially gamble their life savings. I'm sure your risk profile is "socially acceptable", but I think you're missing the main point of GP, i.e. there's additional risks that shouldn't be dismissed with an offhand remark.

I'll also note that such leveraged positions make the assumption that: (1) you will continue to have a stable stream of income for mortgage repayment, (2) the stock market trends upward, (3) property markets won't fall dramatically, (4) interest rates won't rise dramatically.

They sound rather independent at first but when the economy crashes those things suddenly happen all at once. As you may know, the economy crashes every once a while, and from a "frequentist" perspective something like this happening in the next 5 years is probably in the order of 1%-5%.

That said, I'll grant you that the advantage of these leveraged positions are that it's "socially acceptable" to take the risk. No sympathy for those who gamble away their savings in a casino, but the class of people who became homeless because they speculated in the stock market instead of repaying their mortgages might get a bailout with public funds if they're lucky.

[mixmastamyk]

Yes you can get better returns in the market, but owning a home is an investment in life. As Charles Schwab once said in an old book of his. (Sure it depends.)